Suppose you have a project with a projected annual cash flow before interest of 7.6 million, indefinitely. The initial investment of $23 million will be financed with 75% equity and 25% debt. Your tax rate is 35%, your cost of capital if you were an all-equity firm is 17%, and your usual borrowing rate is 11%.

Your project has been reviewed by your local city government and has been selected to received municipal funding at a rate of 9%. There will however be a flotation cost of this debt of 600000, which must be paid immediately, yet amortized over 8 years and not paid from the gross proceeds of your debt. (You will pay this fee from cash outside of the debt financing.)

Using the APV technique, determine whether to approve this project or not.